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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate the number of shares outstanding of each of the issuer's common stock, as of September 30, 2002. 2,920,000 shares

This filing contains 17 pages.

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

At March 31, 2002, pursuant to discussions with federal bank examiners, the Bank changed its method of estimating its allowance for loan losses. The new method resulted in more conservative classification of specific commercial loans with documentation and structural deficiencies and retail loans with certain historical performance characteristics. Bank management has determined that the change in method is necessary to reflect increased loss inherent to such loans. As a result of the change in method, the provision for loan losses increased and net income decreased $4.4 million, $2.6 million, net of tax, or $.90 per share, for the quarter ended March 31, 2002. In addition, additional allowances of $.9 million were recorded for deterioration of loans in the normal course of business, in the first quarter of 2002.

Reconciliation of Total Income Taxes Reported with the Amount of Income Taxes

Computed at the Federal Statutory Rate (34%)

Dollars in Thousands

The unaudited consolidated financial statements have been prepared on a consistent basis and in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. These adjustments, except as discussed in Note 1, were of a normal, recurring nature and consistent with generally accepted accounting principles. For further information, refer to the consolidated financial statements and footnotes included in the Corporation's annual report on Form 10-K for the year ended December 31, 2001.

The Bank voluntarily entered into a written agreement with the Office of the Comptroller of the Currency. The agreement relates to asset quality and management and board oversight of the lending function. Management believes that the financial ramifications related to the agreement have been fully recorded.

Average earning assets increased 12.6% in the first three quarters of 2002 compared to a 17.7% increase in the first three quarters of 2001. The Corporation's only subsidiary at September 30, 2002 was First Farmers and Merchants National Bank. The Bank owns one hundred percent of F & M West, a Nevada subsidiary that provides advisory service for management of the Bank's investment portfolio. As a financial institution, the Bank's primary earning asset is loans. At September 30, 2002, average net loans had increased 11.9 % and represented 64.4 % of average earning assets. Approximately 43% of this increase is attributable to an acquisition of two offices of the Community Bank, an Alabama banking corporation, in Pulaski, Giles County, Tennessee, on March 29, 2002. This increase compares to a 9.5% increase in average net loans at September 30, 2001 without an acquisition in the second quarter of 2001, the total increase was 2 7.9 %. Average investments accounted for 35.6 % of average earning assets at September 30, 2002, posting a 13.8% increase in the first nine months of 2002. No investments were acquired in the acquisition. Average total assets of $884 million at the end of the first nine months of 2002 compared to $760 million at the end of the first nine months of 2001. Period-end assets were $907 million compared to $821 million at December 31, 2001, a 10.5% increase including the acquisition and 6.2% without it.

The Bank maintains a formal asset and liability management process to control interest rate risk and assist management in maintaining reasonable stability in the gross interest margin as a result of changes in the level of interest rates and/or the spread relationships among interest rates. The Bank uses an earnings simulation model to evaluate the impact of different interest rate scenarios on the gross margin. Each month, the Asset/Liability Committee monitors the relationship of rate sensitive earning assets to rate sensitive interest bearing liabilities (interest rate sensitivity) which is the principal factor in determining the effect that fluctuating interest rates will have on future net interest income. Rate sensitive earning assets and interest bearing liabilities are those which can be repriced to current market rates within a defined time period. The following sections analyze the average balance sheet and the major components of the period-end balance sheet.

Available-for-sale securities are an integral part of the asset/liability management process. As such, they represent an important source of liquidity available to fund loans and accommodate asset reallocation strategies dictated by changes in bank operating and tax plans, shifting yield spread relationships, and changes in configuration of the yield curve. At September 30, 2002, the Bank's investment securities portfolio had $196.4 million available-for-sale securities, 64.4% of the total portfolio, and $108.7 million held-to-maturity securities, 35.6% of the portfolio. There were $117.2 million available-for-sale securities, 48.7% of the portfolio, and $123.2 million held-to-maturity securities, 51.3% of the portfolio, at December 31, 2001. Slowing loan demand contributed to the increased availability of funds that were invested in available for sale securities.

The loan portfolio is the largest component of earning assets and consequently provides the highest amount of revenues. The loan portfolio also contains, as a result of credit quality, the highest exposure to risk. When analyzing potential loans, management assesses both interest rate objectives and credit quality objectives in determining whether to make a given loan and the appropriate pricing for that loan. The Bank maintains a diversified portfolio in order to spread its risk and reduce its exposure to economic downturns which may occur in different segments of the economy or in particular industries. The increase in the average loan portfolio, discussed earlier, consists of a 17.2% increase in commercial loans, about one fourth of the increase from the acquisition; a 4.6% increase in personal loans, the acquisition reversing a decline of 6.0%; and loans secured by real estate posted an 12.3 % growth, 8.0% without the acquisition, for the first nine months of 2002. Commercial loan increases includ ed new loans to several municipalities. Lower interest rates contributed to the increase in loans secured by real estate.

The analysis and review of asset quality by the Bank's credit administrator includes a formal review that is prepared quarterly to assess the risk in the loan portfolio and to determine the adequacy of the allowance for loan and lease losses. As discussed in Note 1, the Bank has changed its method of estimating the allowance for loan and lease losses. Management believes that the increased allowance for loan and lease losses (ALLL) is consistent with the requirements of generally accepted accounting principles based on information available at September 30, 2002. The changes in estimate methodology include:

• Stratification of the retail loan portfolio, segregating loans with characteristics that accentuate loss potential.
• Redefinition of the classification criteria of commercial loans to better reflect structural and documentation deficiencies that could impair collectibility.

Application of this new methodology resulted in an abnormal addition to the Bank's allowance for loan and lease losses in the first quarter of 2002. Additions to the allowance during the first nine months of 2002 were $6.05 million. The allowance for possible loan and lease losses was $11.98 million or 2.3 % of gross loans at September 30, 2002 which compares to $6.7 million or 1.3 % at December 31, 2001. Net charge offs for the first nine months of 2002 were $1,312 thousand, an annualized net charge off ratio of .33 %. Net charge offs for the first nine months of 2001 were $684 thousand, an annualized net charge off ratio of .18 %.

Management has developed a formal plan to provide better control over underwriting of loans and monitoring collectibility. That plan includes education and training of personnel to encourage more uniform application of the Bank's loan policies and procedures, changes in management information systems to better identify loans with adverse characteristics and better control corrective actions, hiring of additional credit analysts to support lenders in underwriting and monitoring of loans and strengthen oversight of the lending function, reevaluate the scope of loan reviews, and modify loan policies and procedures to facilitate improved credit operations in the future. The Bank is currently conducting a review of all relationships aggregating $250 thousand and greater. This review process will be finalized by the end of the year.

After this review, loans totaling $15.4 million, or 2.96 % of the portfolio, were classified as other assets especially mentioned. This compares to loans totaling $12.5 million so classified at December 31, 2001, and $5.5 million so classified at September 30, 2001. Loans totaling $30.4 million, 5.8 % of the portfolio, were classified as substandard at September 30, 2002. This compares to loans totaling $17.8 million so classified at December 31, 2001, $14.6 million so classified at September 30, 2001. Loans totaling $1.7 million, or .3 % of the portfolio, were classified as doubtful at September 30, 2002. This compares to $.5 million so classified at December 31, 2001 and $.7 million so classified at September 30, 2001. Loans having recorded investments of $12.1 million, or 2.3 % of the total portfolio, were identified as impaired at the end of the first nine months of 2002 compared to $9.6 million at March 31, 2002, $12.1 million at June 30, 2002, and $5.6 million at December 31, 2001.

The loan portfolio is well diversified with loans generally secured by tangible personal property, real property, or stock. The loans are expected to be repaid from cash flow or proceeds from the sale of selected assets of the borrowers. Collateral requirements for the loan portfolio are based on credit evaluation of the customer. Most of the Bank's activities are with customers located within southern middle Tennessee. The Bank does not have any significant concentrations in any one industry or customer.

There was a write down of other real estate in the third quarter of 2002 associated with revised estimates of costs and improvements needed to sale. The carrying value of other real estate is included in other assets on the face of the balance sheet and represents real estate acquired through foreclosure and is stated at the lower of cost or fair value minus cost to sell. An allowance for other real estate owned is not maintained. Any decreases or losses associated with the properties have been charged to current income. Management evaluates properties included in this category on a regular basis. Actual foreclosures that were included in the carrying value for other real estate at September 30, 2002, December 31, 2001, and September 30, 2001, totaled $880 thousand, $873 thousand, and $932 thousand respectively.

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in those particular financial instruments. The total outstanding loan commitments and stand-by letters of credit in the normal course of business at September 30, 2002, were $53.6 million and $6.2 million respectively. Loan commitments are agreements to lend to a customer as long as there is not a violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support publi c and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in making a loan.

The Bank does not have any foreign offices and all deposits are serviced in its twenty-two domestic offices. The bank's average deposits grew during the first nine months of 2002 reflecting a 14.8 % growth compared to a 19.4 % growth in the first nine months of 2001. Deposit growth attributable to the acquisition in 2002 was 3.5%. Deposit growth attributable to the acquisition in 2001 was 15.1%. Transaction accounts increased 27.6% and savings deposits increased 54.6% during the first three quarters of 2002. These deposits and demand deposits, representing 14.1% of average total deposits, are the nucleus of core deposits for the Bank.

Average shareholders' equity in the first nine months of 2002 remained strong totaling $93.7 million at September 30, 2002, an 8.6 % increase from 2001 year end. The Corporation and the Bank are subject to federal regulatory risk-adjusted capital adequacy standards. Failure to meet capital adequacy requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that could have a direct material effect on the consolidated financial statements of the Corporation and its subsidiary, the Bank. The regulations require the Bank to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios of Total Capital and Tier I Capital to risk-weighted assets and of Tier I Capital to average assets. Equity capital (net of certain adjustments for intangible assets and investments in non-consolidated subsidiaries and certain classes of preferred stock) are considered Tier 1 ("core") capital. Tier 2 ("total") capital consists of core capital plus subordinated debt, some types of preferred stock, and a defined percentage of the allowance for possible loan losses. As of September 30, 2002, the Corporation's total risk-based and core capital ratios were 15.1 % and 14.9 % respectively. The comparable ratios were 15.4% and 14.2% at year end 2001. As of September 30, 2002, the Bank's total risk-based and core capital ratios were 14.9% and 13.7% respectively. The comparable ratios were 15.2% and 13.9% at year end 2001. As of September 30, 2002, the Corporation an d the Bank had a ratio of core capital to average total assets of 8.5 % and 8.4% respectively, compared to 9.1% and 8.9% at December 31, 2001. Management believes, as of September 30, 2002, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.

Total interest income was .6% less for the first nine months of 2002 than the first nine months of 2001. Interest and fees earned on loans decreased 2.1 % due to a softening in loan demand and falling interest rates. Interest earned on investment securities and other investments increased 3.7 % compared to the first nine months of 2001.

Total interest expense in the first nine months of 2002 compared to the first nine months of 2001 decreased 25.6%. The total cost of interest-bearing deposits declined as interest rates declined. As a policy, budgeted financial goals are monitored on a monthly basis by the Asset/Liability Committee where the actual dollar change in net interest income given different interest rate movements is reviewed. A negative dollar change in net interest income for a twelve month period of less than 4.5% of net interest income given a three hundred basis point shift in interest rates is considered an acceptable rate risk position. As of September 30, 2002, a negative dollar change that is 1.7% of net interest income for the next twelve months was the most income at risk given a three hundred basis point shift in interest rates. The net interest margin, on a tax equivalent basis, at September 30, 2002, 2001, and December, 31, 2001 was 4.45%, 4.21%, and 4.30% respectively.

Net interest income on a fully taxable equivalent basis is influenced primarily by changes in: (1) the volume and mix of earning assets and sources of funding; (2) market rates of interest, and (3) income tax rates. The impact of some of these factors can be controlled by management policies and actions. External factors also can have a significant impact on changes in net interest income from one period to another. Some examples of such factors are: (1) the strength of credit demands by customers; (2) Federal Reserve Board monetary policy, and (3) fiscal and debt management policies of the federal government, including changes in tax laws.

Noninterest income decreased 1.6% during the first nine months of 2002 compared to the first nine months of 2001. Income from fiduciary services provided in the Bank's trust department declined 2.6% compared to the first three quarters of 2001. Trust fees are based on the market value of accounts serviced which was down compared to the same time period a year ago. Other service fees are up 3.5% compared to the first nine months of 2001 due to increases in the number of accounts being serviced.

Noninterest expenses, excluding the provision for possible loan losses, were 13.6% more in the first nine months of 2002 than in the first nine months of 2001. Acquisitions contributed to increases in net occupancy and furniture and equipment expense, up 22.3% and 41.7% respectively, compared to the first nine months of last year.

Net income was adversely affected the first nine months of 2002 declining $.51 per share due to the change in calculating the adequacy of the provision to the allowance for loan and lease losses and the additional provision for loan deterioration discussed earlier. However, income per share of $1.15 for the three months ended September 30, 2002 was up 9.9% over the three months ended September 30, 2001.

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

Exhibits

99.1 Certifications pursuant to 18 USC Section 1350 - Sarbanes-Oxley Act of 2002

Reports on Form 8-K

A Form 8-K, containing the certification our chief executive officer and chief financial officer were required to make with respect to this Form 10-Q by Section 906 of the Sarbanes-Oxley Act of 2002, was filed August 14, 2002.

A Form 8-K, containing a press release describing our agreement with the Office of the Comptroller of the Currency was filed October 3, 2002.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

(Registrant)

CERTIFICATION PURSUANT TO

18 U.S.C. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of First Farmers and Merchants Corporation and Subsidiary for the quarter ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof , each of the undersigned certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S. C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Form 10-Q complies with the requirement of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in Form 10-Q fairly presents, in all material respects, the financial condition and results of operation of First Farmers and Merchants Corporation and Subsidiary.

(Registrant)

We certify that:

1. We have reviewed this quarterly report on Form 10-Q for First Farmers and Merchants Corporation;
2. Based on our knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on our knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's officers and each of us are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

1. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
2. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
3. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

1. The registrant's officers and each of us have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's Board of Directors:

1. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
2. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

1. The registrant's officers and each of us have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including and corrective actions with regard to significant deficiencies and material weaknesses.